Wholesale prices rise sharply, 0.4 percent boost in September

AP Economics WriterWASHINGTON (AP) -- Prices at the wholesale level rose by an unexpectedly large 0.4 percent in September as the price of gasoline and other energy products posted a second straight month of large gains.

The Labor Department reported Friday that last month's increase in its Producer Price Index, which measures inflation pressures before they reach the consumer, matched the 0.4 percent gain in August. Both increases followed a huge 0.9 percent decline in wholesale prices in July, which had been the biggest one-month drop in eight years.

The size of the August increase was unexpected. Analysts had been looking for a more modest rise of around 0.1 percent.

However, the government noted that the September PPI report reflected prices developments in the early part of the month. Any price changes after Sept. 11 would not be reflected in this report. Economists believe the terrorist attacks have pushed the country into a recession. For that reason, they expect that inflation pressures, already declining before the attacks, will remain well contained in coming months.

Meanwhile, a second report Friday showed that retail sales plunged by a sharp 2.4 percent in September after having risen by 0.4 percent in August.

The Commerce Department reading on retail sales was far worse than private economists' expectations for a decline of around 0.7 percent. On Thursday, the nation's big retailers reported that they had suffered their weakest September in decades.

Consumer spending had been weak even before the terrorist attacks, reflecting rising unemployment, which now stands at 4.9 percent as the nation's labor market has come under heavy pressure from the year-long economic slowdown.

Many economists believe that the overall economy, which managed a barely positive growth rate of 0.3 percent in the April-June quarter, slipped into negative territory in the just completed July-September quarter.

They are also forecasting that the current quarter will be negative, fulfilling the classic definition of a recession as two consecutive quarters of declining gross domestic product.

However, the outlook is for a strong rebound next year, reflecting the sizable reductions the Federal Reserve has already made in short-term interest rates. Analysts also expect that the economic stimulas package of tax cuts and spendng increases Congress will approve will also help spur a rebound.

For September, energy prices at the wholesale level rose by 0.9 percent following an even larger 1.1 percent increase in August. Gasoline prices rose by 6.3 percent last month after increasing 8.7 percent in August. However, both of those gains occurred following a huge 17.7 percent drop in gasoline prices in July.

Food costs last month moderated to a gain of just 0.2 percent following an increase of 0.9 percent in August.

For much of this year, energy costs have been moderating after a sharp rise in 2000. Because of that wholesale prices through September have been rising at an annual rate of just 1.3 percent, down sharply from the 3.8 percent gain for the same period in 2000.

Excluding volatile food and energy prices, the so-called core rate of inflation was up 0.3 percent in September, reflecting big price gains in a number of areas. The cost of new cars was up 1.3 percent, the biggest increase since a 1.9 percent jump last October.

So far this year, the core rate of inflation at the wholesale level has been rising at an annual rate of 1.6 percent, about the same as the 1.5 percent increase during the same period last year.